Why is gold so expensive compared to silver? You may need to purchase 90 ounces silver in order to buy just one ounce gold. The gold to silver price ratio is what we call it. This ratio tells you how much silver is needed to buy one gold piece.
The ratio does not remain the same. This ratio fluctuates. This is the result of four major factors. We’ll explore the four main drivers of this phenomenon in an easy-to-understand way. Let’s look at the economy of a big country, large banks, outdated cameras and new energy
Four Major Factors Driving the Gold–Silver Price Ratio
1. Big Banks Love Gold
Imagine a piggybank where you can save all your valuables. There are piggy banks in countries as well. Central banks are what they’re called. They like to keep a large amount of gold. Why? Gold is considered to be a safe investment, particularly in uncertain times.
These powerful central banks began buying gold in large quantities many years ago, around 2008. The central banks didn’t even try to sell the gold. The only thing they did was add to it. It’s as if they are taking out a large number of cookies from the cookie jar when they purchase so much gold. The cookie jar has fewer cookies for the rest of us.
The gold left is more valuable and special. Silver does not have the same advantages. Silver is not stored and purchased by central banks. Gold’s value tends to rise faster when banks buy up the metal. The gold/silver price ratio increases as a result.
2. Silver’s old job disappeared
Consider how you take photos today. We use our phones! In the past, cameras used film. Silver was needed to make the film. Silver was used in huge quantities for the photography. Silver’s main job was to be used for photography.
People stopped using films as digital cameras, and later smartphones, became more popular. Silver’s use in photography has dropped dramatically. One of the biggest silver customers suddenly disappeared. If fewer people are interested in buying something, the price will not increase as much.
Silver lost much of its popularity, while gold was still in demand for banks and jewelry. Silver’s prices sometimes struggle to match gold’s. Imagine a restaurant that suddenly had half of its patrons leave. The restaurant would not be as popular or valuable.
3. A New Job for Silver: Solar Power
Silver has found a new job. Solar panels are its new career. These shiny panels may have been on large fields or roofs. These panels absorb sunlight to produce electricity that can be used in our schools and homes.
This is where silver comes in. Silver is a great conductor of electricity. In order to move energy, we use a small amount of silver in each solar panel. We are increasing the number of solar panels as we try to increase clean energy in this world.
Silver demand is on the rise again. Silver’s value is supported by this new job. We will require more silver as we produce more solar panels. Silver’s value could catch up to that of gold, reducing the ratio between gold and silver.
4. China’s fast-growing economy
Fourth, the rate of growth in a particular country. China is a massive economy that has many factories. This could include electronics, car parts, or appliances. Because silver is so valuable, it’s used in a lot of industrial products.
China’s factories produce a lot of things when the economy grows rapidly. They need to buy more materials including silver. Silver’s price rises due to the high demand. The gold-silver price ratio gets smaller when silver prices go up.
A slowdown in China’s economic growth will result in fewer products being produced by its factories. Silver is not as important to them. Silver’s value can fall or remain flat due to this lower demand. Because gold isn’t as widely used in manufacturing, its price doesn’t fluctuate in the same manner. The gold/silver price ratio is a key factor in determining the growth rate of China.
What This All Means
Price differences between silver and gold are always fluctuating. The story is told by four characters.
- Central banks: These central banks buy a lot of gold and make it expensive.
- Photographie: Film is no more. The demand for silver has dropped.
- Solar Panels : New uses for silver are helping to boost its price.
- China’s growth: If factories are busy they require more silver.
Understanding these four factors will help you understand why, one day, it may take 100 ounces to purchase an ounce gold and the next, it could only be 70. This is a beautiful dance between the two most renowned metals in the world